The Secret Sauce to a Successful Sales Impact Study
When competing for customers, the franchising business can be dog-eat-dog. A smart, transparent impact study can answer a lot of questions for existing and prospective quick service and fast casual restaurants.
Consider the legendary buildings of ancient Greece like the Parthenon or the Temple of Hephaestus. Each relies on columns to support its massive structure. The exact positioning of those columns has played a vital role in their longevity. Placed any further apart or closer together, and the buildings’ foundations might have collapsed eons ago.
Today, franchisees are the pillars that hold up a franchise. Each location helps to expand the business and reinforce the brand. But problems can arise when a new location is proposed in proximity to another. Suddenly, the two franchisees are in competition.
In this scenario, the existing franchisee is faced with a dilemma. The arrival of a new facility could cut directly into sales. Often, the existing franchisee, or its holding company or corporate ownership, will bring in a third-party to conduct a sales impact study. You might think of impact studies as the mortar in the pillars. These studies typically consist of conducting a well-composed survey that poses questions of the existing customer base and then calculating the sales impact.
Should the impact of a new location go above a certain threshold where the projected loss of sales puts a strain on the existing location, the holding company or corporate ownership may have contractual rights to block the new facility from opening.
For a prospective franchisee, impact studies can help minimize competition with an existing franchisee and determine the best location(s) for a new restaurant.
Indeed, sales impact studies are often designed to make sure franchises aren’t overly-cannibalizing one another’s customers. Some overlap can be anticipated, but done well, these studies can mitigate potential issues and possibly keep the doors open for more locations — whether it’s an existing franchisee or a prospective one.
So, what does it take to get a sales impact study right? Recently, a team of professionals from FTI Consulting was engaged by a holding company with multiple franchises who was faced with a competitor franchise opening a new, nearby location. The team reviewed the original sales study and created its own. By introducing new factors and methodologies, the professionals developed a more robust and transparent way of polling customers in proximity.
The findings showed that the prospective franchisee would cannibalize too much of their existing sales by opening a new location. Check out the infographic below to see the right combination of factors and methodologies that can lead to a more honest sales impact study.
Competition is inherent in business, even among franchisees. To maximize value and ensure a fair sales impact study, owners must gain a better understanding of customers and their preferences. Only then will they have the fortitude to not only hold themselves up but support the larger franchise which aims to stand the test of time.
© Copyright 2021. The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.
About The Journal
The FTI Journal publication Offers deep and engaging insights to contextualize the issues that matter, and explores topics that will impact the risks your business faces and its reputation.